1.

What is strategy? Explain the various levels of strategy in an organization?

Ans: Meaning and Definition of Strategy:The word strategy comes from Greek strategies, which refers to a military general
and combines stratus (the army) and ago (to lead). The concept and practice of
strategy and planning started in the military, and, overtime, it entering business
and management. The key or common objective of both business strategy and
military strategy is the same i.e., to secure competitive advantage over the rivals or
opponents.
Chandler (1962): The determination of the basic long term goals and objectives of
an enterprise and the adoption of the courses of action and the allocation of
resources necessary for carrying out these goals.
Andrews (1962): The pattern of objectives, purpose, goals and the major policies
and plans for achieving these goals stated in such a way so as to define what
business the company is or is to be and the kind of company it is or is to be.
Ansoff (1984): Basically, a strategy is a set of decision-making rules for the
guidance of organizational behavior.
A strategic business unit is a division or a product/product group unit which
operates as a separate profit centre having its own set of market and competitors
and its own marketing strategies. The company or the corporate organization
consists of related businesses and/or products grouped into different SBUs. The
SBUs are homogeneous enough to manage and control most factors which affect
their performance. Resources are allocated to SBUs in relation to their contributions
to the corporate objectives, growth and profitability.
Three levels in the strategic management process are corporate level, the business
unit or SBU level and the functional level. These three levels of strategy distinctly
exist only in multiple SBU firms. For single business companies, corporate level
strategy and SBU level strategy are not really distinguishable because all the
organizational level strategies for resource allocation or growth or market
diversification are formulated with respect to the particular product or business of
the company.
Corporate level strategy sets the long term objectives of an organization and broad
policies and controls within which an SBU operates. The corporate level strategies
also help an SBU to define its scope of operations and also limit or enhance SBUs
operations through resources the corporate management allocates for securing
competitive advantage. Functional level strategies follow from, and also support,
SBU-level strategies. Strategies at the functional level are often described as
tactical. Such strategies are guided and controlled by overall SBU strategies.
Functional strategies are more concerned with implementation or corporate-and

SBU-level strategies rather than formulation of strategies. Strategic management

process at three levels also involves decision making. But the types of decision
making, their scope and impact are different at different levels. The characteristics
of decision making at three levels may be more clearly understood in terms of major
dimensions of decision making.
A Distinction can be made between functional level or functional area strategies and
operating strategies. Functional area strategies involve approaches, actions and
practices to be undertaken for management particular functions or business
processes or key activities within a business marketing strategy. Operating
strategies in comparison, are relatively narrow strategic for managing different
operating units (plants, distribution centers in different geographic locations etc)
and specific operating activities of strategic significance (advertising campaigns,
management in particular brands, website sales and operations, etc). Operating
strategies provide more specific details about functional area strategies and render
completeness to functional level strategies and also to overall corporate strategy.
Hindustan Unilever (HUL) s a multi SBU fast moving consumer goods (FMCG)
company. It markets about 100 products/brands. It has grouped its big range of
products into three categories: home and personal care, foods and beverages and,
industrial and agricultural. In addition to domestic marketing, it is also engaged in
export which is a separate SBU. The company has adopted a hybrid organizational
structure based on functions and product divisionalization. Like most organization,
strategies at HUL also operate at three levels: corporate, SBU and functional.
2. Specify the interrelationship between strategic planning and strategic
management. Which comes first?
Ans: Plan or planning should precede action. And, strategic planning should precede
strategic management. Strategic planning (also called corporate planning) provides
the framework (some call it a tool) for all major decisions of an enterprise-decision
on products, markets, investments and organizational structure. In a successful
organization, strategic planning or strategic planning division acts as the nerve
centre of business opportunities and growth. It also acts as a restraint or defence
mechanism that helps an organization foresee and avoid major mistakes in product,
market or investment decisions.
A strategic planning, also called a corporate plan or perspective plan is a blueprint
or a document which incorporates details regarding different elements of strategic
management. This includes vision/mission, goals, organizational appraisal,
environmental analysis, resource allocation and the manner in which an
organization proposes to put the strategies into action. The concept and role of
strategic planning would be clear if we mention the major areas of strategic
planning in an organization. First, strategic planning is concerned with environment
or rather, the fit between the environment, the internal competencies and business

of a company. Second it is concerned with the portfolio of businesses a company

should have. More specifically, it is concerned with changes - additions or deletions in a companys product market postures. Third strategic planning is mostly
concerned with the future or the long term dynamics of an organization rather than
its day to day tasks or operations. Fourth, strategic planning is concerned with
growth direction, pattern and timing of growth. Fifth, strategy is the concern of
strategic planning. Growth priorities and choice of corporate strategy are also its
concerns. Finally strategic planning is intended to suggest to an organization,
measures or capabilities required to face uncertain to the extent possible.
All large organizations formulate strategic plans. In 1997, All India Management
Association (AIMA) conducted a study to find out about business plans, strategies,
techniques and tools adopted by various Indian companies. The study results were
published in Business Today. The study showed that 56 percent of the total number
of companies (160) surveyed had published strategy. In terms of planning horizon,
the period covered in the strategic plan was less than 3 years by 44 percent of the
companies, 3-5 years by 40 percent of the companies and more than 5 years by 16
percent. Analyzed in terms of company size, bigger companies planned for a longer
period. For 45 percent of the large companies, the planning period was more than 5
years but for 70 percent of the small companies, the period was less than 3 years.
A characteristic feature of the starting plans of many large Indian companies is that
the long term planning horizons of these companies generally coincide with the
national planning period. This means that many of these companies follow a five
year planning period which synchronizes with the 5 year plans of the country. This is
particularly true of public sector enterprises in the core sector.
For example, companies like BHEL, SAIL, NTPC and NHPC have formulated corporate
plans which are linked to the national plans. The 5 year planning period of these
companies, however, is not a generalization. Corporate plans of some of these
companies are linked to the national plans, but, not necessarily of exactly 5 year
duration; the duration can be a multiple of 5 years. For example, SAIL had prepared
an ambitious corporate plan with a planning horizon of 15 years (1985-2000). Such
plans are more appropriately called perspective plans.
Marico Industries, the maker of Parachute coconut oil, had prepared a strategic
business plan for the period, 1991-96. For the preparation of the plan, a strategic
planning team was formed consisting of six managers from different functional
areas/disciplines. The planning team made some forecasts about the general
macroeconomic environment during 1991-96 and how the Indian economy would
perform during the period in terms of aggregate demand, technology development
and availability of raw materials. In addition to these, the company had considered
other environmental factors also. Based on an analysis of the major strengths and
weaknesses of the company and the environmental factors (opportunities and
threats) a detailed SWOT analysis of the company was undertaken. The objective of

SWOT analysis was to identify a growth and expansion possibilities in existing and
new products/businesses. These were finally translated into projected volume,
turnover and profitability.
Once a strategic plan is prepared, the same is submitted to the senior
management/top management for their consideration and approval. In Marico
industries also, the strategic business plan prepared by the planning group was
submitted to the senior management and finally to the top five management (CEO).
Deliberations took place at different levels and the business plan was finalized. This
became more like an annual plan which was to be revised and updated every year
during the reference period (1991-96) as per the strategic business plan. Maricos
target was to increase its turnover to Rs. 300 crore by 1995-96. The business plan
also stipulated that Marico should add a new product to its portfolio every year and
seek technology tie up for introduction of new products.
Strategic planning and strategic management are intimately related to each other.
Where strategic planning ends, strategic management takes over; but, both are
complementary to each other. They form vital links in an integrated chain in
corporate management. Both are continuous process. Strategic management may
be more continuous, because it involves implementation and monitoring also.
3. What is a mission statement? Differentiate between a mission statement and
a vision statement?
Ans: According to Peter Drucker, A business is not defined by its name, statutes or
articles of corporation. It is defined by the business mission. Only a clear definition
of the mission and the purpose of the organization make possible clear and realistic
business objectives.
This emphasizes the need for organizations to take their mission statement
seriously and formulate it properly. What is a mission statement? Or, what is a
company mission? The mission statement of a company is variously called a
statement of philosophy, a statement of beliefs, a statement of purpose and, a
statement of business principles. A mission statement is many in one. It embodies
the business philosophy of a companys decision makers, implies the image the
company wishes to protect for itself, reflects the companys self concept; indicates
the company seeks to satisfy. In short, it describes the company product, market
and technological focus; and it does so in a way that reflects the values and
priorities of the company strategic decision makers.
The mission statement should be as explicit or comprehensive as possible. Some
feel that the mission statement should have seven dimensions or serve seven
different purposes or objectives.
These are

To ensure unanimity of purposes within the organization

To develop a basis or standard for allocating organizational resources
To provide a basis for motivating the use of the organizational resources
To establish a general culture or organizational climate; for example, to
suggest a business like approach.
To facilitate the translation of objectives and goals into jobs and
responsibilities and assignment of tasks to responsible segments within the
organization.
To serve as a focal point for those who can identify themselves with the
organizations purpose and business.
To specify organizational purposes and inspire translation of these purposes
into goals in such a way that cost, time and performance parameters can be
assessed and controlled.

Mission and Vision:

Sometimes mission and vision of a company are used synonymously or
interchangeably. This is not correct. A clear distinction exists between the two.
Mission is concerned more with the present; the vision more with the future. The
mission statement answers the question: what is our business? the vision
statement answers the question: What do we want to become or, which way should
we be going? The mission stateme nt focuses on the present strategic thrust while
the vision statement outlines the strategic path. All visionary companies have a
vision statement. The vision of Microsoft (Since 1999) has been to broad base its
outlook to empower people through great software anytime, anywhere and on any
device including the PC and an incredibly rich variety of digital devices accessing
the power of the internet.
Most Progressive companies develop both a mission statement and a vision
statement. Indian Oil Corporation is a good example. Vision and mission statement
of IOC are:

Vision: Indian Oil aims to achieve international standards of excellence in all

aspects of energy and diversified business with focus on customer delight
through quality products and services.
Mission: Maintaining national leaderships in oil refining, marketing and
pipeline transportation.

Vision and mission statements can be generally found in the beginning of annual
reports of companies. These statements are also seen in the corporate or long term
strategic plans of companies. These also appear in many company reports or
documents like customer service agreements, loan requests, labour relations
contracts, etc. Many companies also display them at prominent points or locations
in company premises.
4. What is SWOT analysis? Explain SWOT analysis in the form of Matrix?

Ans: ETOP and EFEM focus only on the opportunities and threats from the
environment. But, to exploit an opportunity or to consider a threat, a company
should have required strengths or competence. A company also needs to know its
weaknesses in terms of competence, because weaknesses may affect its capability
to take advantage of an opportunity or negotiate a threat. So, simultaneously with
environmental analysis or appraisal, organizations also need to assess their internal
strengths and weaknesses. This is done through SWOT analysis. Companies have
been using SWOT analysis for long, whether for general business strategy or for
marketing strategy. In SWOT, S and W relate to internal competence factors, and
O and T pertains to external environment factors:
S Strengths
W Weaknesses
O Opportunities
T Threats
Strength is a resource, skill, capability or any other advantage relative to
competitors and in relation to markets. A weakness is a limitation or deficiency in
resource, skills and capabilities or any other disadvantage relative to competitors
which impedes performance of an organization.
SWOT analysis can be a useful tool to analyze the extent to which strategy of an
organization and its more specific strengths and weaknesses are capable of dealing
with the changes in the business environment. And, this would decide whether a
particular factor in the environment is an opportunity or threat to the organization
with reference to the particular strategy. For systematic SWOT analysis, major
strengths and weaknesses of the organization for the strategy should be worked
out. Then, the important factors in the environment relevant to this strategy should
be identified. Finally, the strengths and weaknesses should be matched with the
environmental factors through matching analysis or a matrix.

Strength/Weak
ness

Major Strengths
Capacity
to
innovate
Market
Research
Global
base/Internatio
nal Trade
Major
Weakness
New
in
India/Developin
g Countries
Existing brand

New
Technology

Customer
Choices
and
Preferences

Competitio
n

Market
Growth

Internation
al
Exposure

suited
for
US/European
Markets
High
Cost
Products
O (opportunity)
Threats (T)
O-T

2
1
1

3
3
0

3
3
0

5
1
4

6
0
6

In SWOT analysis in Table 7.4, opportunities far outweigh threats (O T = 11)

shown in the last row. On this basis, it can be said that the environment is project or
strategy friendly and the project is recommended. If threats are more than
opportunities, the environment is to be considered hostile unless some threats can
be converted into opportunities by working on the weaknesses.
If opportunities are equal to threats, the matter should be put to vote of the
senior/top management for decision. The matrix in Table 7.4 can also be presented
in a more clear quantitative form by assigning numbers in places of O and T.
Numbers would indicate relating significance of opportunities and threats.
Opportunities will have positive signs; threats will have negative signs. On this
basis, the matrix and the outcome of SWOT analysis can be reformulated as shown
in Table 7.5.
Strength/Weak
ness

Major Strengths
Capacity
to
innovate
Market
Research
Global
base/Internatio
nal Trade
Major
Weakness
New
in
India/Developin
g Countries
Existing brand
suited
for
US/European
Markets
High
Cost
Products
O (opportunity)
Threats (T)

New
Technology

Customer
Choices
and
Preferences

Competitio
n

Market
Growth

Internation
al
Exposure

-3

-2

-2

-2

-1

-2

-3

-1

5
-1

7
-7

6
-7

7
-1

11
0

O-T
4
0
-1
6
11
Pearce and Robinson (2002) have suggested an alternative form of SWOT analysis
more directly in terms of strategy. Based on four different combinations of strengths
and weaknesses and opportunities and threats, four strategic situations develop.
These four strategic situations imply four different strategic actions: aggressive
strategy, diversification strategy, defensive strategy and turnaround type strategy.
These are shown in Figure 7.5. Cell 1 is the most favorable situation; there are
several environmental opportunities and the organization has substantial internal
strengths to exploit opportunities. Such condition suggests aggressive growth
strategies to take advantage of the favorable match between strengths and
opportunities. IBMs intensive market development strategy in the PC market was
driven by a favorable match between its strengths (reputation and resources) and
ample opportunity for market growth. In Cell 2, an organization with key strengths
faces an unfavorable environment.
In such situation, strategists should use current strength to create opportunities in
other products/ markets, that is, to go for diversification. An organization in Cell 3
has plenty of market opportunities, but, is constrained by major internal
weaknesses. Businesses in this cell are like question marks in the BCG Matrix. The
focus of strategy here should be to remove internal weaknesses to capitalize on
existing opportunities, that is, to follow some kind of a turnaround strategy. Cell 4 is
the least favorable situation with the environment posing major threats and the
organization suffering from major weaknesses. The most immediate strategy in this
situation is to defend or sustain current position. Organizations in this cell should
also work on internal weaknesses or competences to be able to negotiate
environmental threats as Chrysler Corporation did in the 1980s when analysis
revealed that the company was in Cell 4.
All the four strategies mentioned above, i.e., aggressive or offensive strategy,
defensive strategy, turnaround strategy and diversification strategy would be
discussed in details in the later units.
SWOT analysis, as presented in Tables 7.4 and 7.5 and also Figure 7.5 involves
subjectivity. Judgment of the strategic planning group or SWOT analysis team plays
a very important role. Therefore, no SWOT analysis should be taken as exact. This
should be understood as a good approximation to matching a companys strengths
and weaknesses with key environmental factors as opportunities or threats. This
should be always done with respect to a particular business (e.g., entry of an
international retail chain in India as shown above). Such analysis, however, is an
essential starting point for a more detailed and rigorous exercise on strategic
investment decisions in terms of costs and returns and organizational objectives
and priorities.
As mentioned, SWOT analysis gives the initial signalspositive or negativefor
launching of a project or product, market entry, etc. Even if initial SWOT analysis is
not favorable, i.e., threats outweigh opportunities, this does not mean that the
project has to be abandoned. This, in fact, provides basis for
Re-examination of the strengths and weaknesses and the possibility of converting
some weaknesses into strengths by investing more resources and improving skills
and capabilities. This would make possible conversion of some of the threats into

opportunities so that matching improves (Figure 7.6) and the project can still be
considered on the basis of investment levels and costs and returns analysis.
5. Define corporate turnaround? Distinguish between surgical and non-surgical
turnaround. Explain with some examples?
Ans: Corporate turnaround may be defined as organizational recovery from business
decline or crisis. Business decline for a company means continuous fall in turnover
or revenue, eroding profit, or accrual or accumulation of losses. So, business or
organizational decline, like business performance, is understood in relative a term,
that is, compared with the past. But, some strategy analysts describe business
decline in terms of current comparisons also; for example, relative to industry rates
or averages or even relative to economic growth of the country. Corporate crisis
means deepening or perpetuation of a decline. Turnaround strategies are usually
required for crisis situations. If organizational decline is not continuous or severe,
corporate restructuring can provide the solutions. That is why turnaround strategy
may be said to be an extension of restructuring strategy. When restructuring is very
comprehensive and leads to corporate recovery, it almost becomes a turnaround
strategy as mentioned above in the case of Voltas. Corporate or business decline
manifests itself in many forms or symptoms, including profitability. These symptoms
are actually different performance criteria of companies. Major symptoms or criteria
or situations which signal towards the need for a turnaround strategy are:
Steadily declining market share;
Continuous negative cash flow;
Negative profit or accumulating losses;
Accumulation of debt;
Falling share price in a steady market;
Mismanagement and low morale.
With some or all these symptoms becoming clearly visible (these symptoms are
generally interrelated) for a company, a turnaround or recovery becomes highly
imperative. But, the situation should be carefully reviewed to assess the extent of
recovery possible before undertaking any such programmes.
Given a strategy, in some situations, recovery may be more or less successful than
in others. Slatter (1984) contends that there are four recovery situations in terms of
feasibility or success. These situations are:
(a) Realistically non-recoverable situation;
(b) Temporary recovery situation;
(c) Sustained survival situation;
(d) Sustained recovery situation.
Realistically non-recoverable situation is one in which chances of survival are very
little, because the company is not competitive, the potential for improvement is low,
clear cost disadvantage exists and demand for the companys product is in decline
stage. In such a situation, divestment or liquidation may be a better option.
Temporary recovery situation exists when there can be initial successful recovery,
but, sustained turnaround is not possible. This can happen because repositioning of
the product is possible. Some cost reduction programmes may be successful, and
revenue generation is also possible at least for some time. Sustained survival
situation means that recovery is possible but potential for future growth does not
exist. This may happen primarily because the industry is in a declining phase (say,
black and white TV, audio cassettes, VCR). A company in such an industry or
situation can either go for divestment or turnaround if it foresees or can create a

niche in the industry and if the growth prospects can be created. Sustained recovery
situation is one in which successful turnaround is possible for sustained growth. In
such cases, business decline might have been caused by internal organizational
factors or external or environmental conditions which the company is able to deal
with effectively. Inherently, the company is strong in terms of competence.
Surgical Turnaround and Non-surgical Turnaround
Generally, there are two methods of corporate turnaround: surgical and nonsurgical.
The surgical method, more commonly practiced in the West, involves sweeping
changes like firing of staff, managers, wholesale reshuffling of portfolios, closing
down operations, etc. Some call it bloodbath or bloodshed. Non-surgical turnaround
adopts the opposite approach, that is, peaceful meansrevamping or recovery
through meetings, discussions, persuasions, consensus, etc. The operations in
surgical turnaround are like this: the first step is to replace the chief executive of the
ailing company by a new iron chief. The new chief promptly gets into action; he
asserts his authority. He issues pre-emptory orders, centralizes functions and spears
some convenient scapegoats. Then he goes about firing employees en masse and
auctioning/selling whole plants and divisions until the fat is satisfactorily cut to the
bone. The bloodbath over, the product mix is revamped, obsolete machinery is
replaced, marketing is strengthened, controls are toughened, accountability for
performance is focused and so on. How bloody this sort of turnaround can be may
be seen from the examples of companies like the US video games manufacturer
Atari, which, among other actions, cut its labour force by two-thirds to 3500 to turn
itself around. At British Leyland, 84,000 employees (40 per cent) were axed to
complete the surgery. At GE, 1,00, 000 of a workforce of 4,00, 000 lost their jobs; at
Imperial Chemical Industries (ICI), the labour force was reduced from 90,000 to 59,
000; half the staff at Chrysler Corporation disappeared; at British Steel, half the
companys production capacity and 80 per cent of workforce were gone.10
Turnaround management of the humane type may involve negotiated and humane
layoffs and divestiture, but, not a bloodbath. This type of turnaround also is
generally brought about by the new helmsman. But, he spends a great deal of time
in trying to understand organizational problems and deliberating on them. He takes
all the stakeholders including unions into confidence; forms groups within the
organization to brainstorm together on what needs to be done to get over the crisis;
tries to create a new work culture; and, generally infuses a strong sense of
participation among the employees and many critical decisions become
participative decisions. There are many examples of successful turnarounds of the
humane type including Enfield, Volkswagen, Lucas, Air India, SPIC, BHEL and SAIL.
We give here the example of SAIL, the Indian public sector steel giant. Its losses
were about `100 crore during 198283 and `200 crore in 198384. A price rise
during 198485 saw SAIL break even in that year. But, rapid increases in coal prices
and freight rates threatened a loss in 198586. The steel ministry and
SAIL management then called for another price hike. Krishnamurthy entered the
scene as Chairman, SAIL in mid-1985. He promptly lobbied against price increase on
the ground that efficiency had to be improved. Indian steel was already the costliest
in the world and any further increase in steel price would have ruinous effects on
the economy, contended Krishnamurthy. He spent several months talking to small
groups of executives, officials, staff and workers in SAIL. He estimates that he talked
to over 25,000 employees to identify operating problems, got perception of how the

company was doing and what employees thought should be done to improve
performance and turn around the company. The turnaround strategy finally
emerged from discussions at all levels.
6. What are the major characteristics of an effective strategy evaluation
system? Analyse these characteristics?
Ans: We have seen above that strategy evaluation and control is an elaborate, and,
at times, complex, process. It can also be a sensitive process because of the human
factor involved. Too much or too rigorous evaluation and control may be expensive
and, sometimes counterproductive alsoauthority and flexibility may be
challenged, minimized or even eliminated. Too little or no evaluation may create the
opposite effectlack of responsibility and accountability. In some companies,
strategy evaluation simply means performance appraisal of the organization. This is
also not correct. The evaluation system should be balanced and follow some norms
and standards. Strategic analysts have laid down certain basic requirements which
evaluation should comply with to be effective.
First, strategy evaluation process or measures should be meaningful. These should
specifically relate to the objectives/targets and the plan. There should be clear focus
and no ambiguity.
Second, strategy evaluation and control process should be economical. This means
that the process should not be made unnecessarily elaborate and incur too much
cost on evaluation itself. Use of too much of information which may not be
necessary increases cost which is avoidable.
Third, the evaluation process should conform to a proper time dimension for control
and information retrieval or dissemination. Time dimension of control should
coincide with the time span of the activity or the implementation phase. Also,
information on developments or feedback should be timely (not delayed or provided
too early) to make evaluation and control more appropriate.
Fourth, strategy evaluation system should give a true picture of what is actually
happening. The objective of evaluation is not fault finding. Sometimes, performance
may be overshadowed by external factors or the environment. For example, during
a severe slump in economic/business activity, productivity and profitability may
decline in spite of best efforts by the managers to implement strategy. This should
be analyzed in the correct perspective.
Fifth, strategy evaluation process should not dominate or curb decisions; it should
promote mutual understanding, trust and common cause. All functional and
operational areas should cooperate with each other in evaluating and controlling
strategies. Strategy evaluation process should be simple and not too complex or
restrictive. Complex evaluation systems may confuse managers and result in lack of
accomplishments.
It is true that there may not be any ideal or the only strategy evaluation system. All
organizations are unique in themselves in terms of vision/mission, objectives, size,
management style, strengths, weaknesses, organizational culture, etc. All these
together determine the exact nature of the evaluation system, as also the
implementation process, which is most suitable for the organization. Waterman
(1987) has made some useful observations about strategy evaluation system of
successful organizations:
Samsung and LG are the leading electronics companies in Korea. During the 1980s,
both the companies were facing environmental changes and reformulated their

strategies in response to the new environment. They adopted similar strategic

methods. Their performance during this period, however, differed significantly.
Samsung clearly outperformed its rival. The difference in performance was primarily
the result of different methods of control adopted by the two companies. In the late
1980s, Samsung further strengthened its already strong environmental scanning
system. It did this by appointing monitors of information in every business
activity/group by introducing management information system for collection and
dissemination of information. The corporate office was strengthened by 200 highperforming managers, and this enabled the company to increase its supervisory role
over the subsidiary units. The major instrument of control was the annual budget,
with rebudgeting done every six months. In contrast, LG changed its strategy to
give greater autonomy to the subsidiaries. It defined the headquarters role as
coordinator and supporter rather than controller. Also, its strategic planning horizon
became three years longer than that of Samsung. Samsung operates a highly
formalized feedback control system. Reporting is comprehensive and also extremely
regular with subsidiary units reporting 15 or 16 times during a month to corporate
office. Evaluation is tough and
the reward and punishment system is based on well-established norms or rules, and
it can be harsh for many. For example, the bonus payments are on zero sum bases
when some employees are paid extra, others are paid less. By contrast, LGs
reporting system is less formalized and is based, to some extent, on the strong
involvement of members of the founding families. This makes it difficult to
implement the reward and punishment system in more professional or objective
way. Samsung follows the groups recruitment system for new managers, except for
some specialists such as R&D staff. So, Samsungs own recruitment policy focuses
on qualification and skills, but the groups recruitment emphasizes the commitment,
attitude and personality of applicants. This shift in recruitment policy focus weakens
the socialization of new staff. Samsung has a well-developed education and training
scheme with company career paths leading to generalists with some special
knowledge. LG, on the other hand, recruits about half of its managers itself with the
LG group recruiting the rest. Its rigorous education and training system is geared to
provide different career paths for general managers, R&D staff and shop floor
managers. In Samsung, informal communication is not strong and sub-group
formation is totally discouraged. By contrast, in LG, informal communication and
sub-group formation are welcomed. To sum up, Samsung has been strengthening its
strategic planning while reducing emphasis on its recruitment process as a control
mechanism. It has focused on two integrating mechanismscentralization and
formalizationwhile reducing socialization among employees. In contrast, LG has
strengthened central control of socialization, while decentralizing strategic planning
and budgetary control.